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Move or improve? Trends in housing RMI

Words:
Brian Green

Housing RMI is is bread and butter to many small practices. Where are the market’s hot spots?

Housing repair maintenance and improvement is the Cinderella of Britain’s building industry. Noticed fleetingly it would seem by the public, mainly when it comes to finding plumbers, it is generally given scant attention by the core construction sector.

Yet RMI accounted for £27 billion of Britain’s £150 billion construction activity in 2016. That ignores the activity of the DIY enthusiasts.

The Office for National Statistics Family Spending Survey estimates that the average UK household spends about £32 a week on repairs, maintenance and alterations. That aggregates nationally to £44 billion a year. Of this, £21 a week per household is contracted out for home improvements, or more than £1,000 a year. It’s a big business.

In terms of the UK economy, construction’s contribution (its gross value added) is about £106 billion, which suggests housing RMI contributes about £20 billion. If that’s the case it’s a bigger contributor to the economy, by almost a third, than UK motor vehicle manufacturers (of which more later). Its GVA, according to the ONS, hit £15.8 billion in 2016 as it produced a record 1.8 million vehicles.

The scale of the housing RMI sector shouldn’t really be a surprise. Britain has one of the oldest housing stocks in the world. In most years we make do, mend and extend more than we knock down and build anew.

For many individual architects and small practices who work locally it’s their staple diet, commissioned as they often are to translate homeowners’ aspirations into plans that will pave the way for dreams becoming reality. Hopefully architects manage a fair share of projects to completion too.

But what makes this market tick? Where are the hot spots? Is there a shift, as newspaper property pages suggest, towards homeowners improving rather than moving to climb the housing ladder?

  • Chart 1
    Chart 1
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By way of an answer to these questions Barbour ABI and the Federation of Small Builders has just released its Home Improvers of Great Britain 2017 report. It ranks local authorities by the number of planning applications submitted for home improvements and compares that figure with the private housing stock.

Using this data and looking at how the various markets have changed over time, the report provides some useful clues to what drives the market and where to find the growing ones. Naturally not all home improvement requires planning, but the big stuff does and plans are meat and drink to architects.

The picture the report paints of activity in 2016 is one of solid growth. Home improvement planning applications rose in line with rising economic growth, as we see in Chart 1. This is not surprising as the report notes that income growth and wealth tend to be the big drivers of expansion in home improvement along with house price growth.

The report goes into far more detail, illustrating for instance the differing propensity to improve homes between family types and differing locations, such as rural or urban.

It also points to an interesting relationship. Here we return to the health of motor manufacturing in Britain. Car sales seem to provide a quick early indicator of the way the home improvement sector will move. Cars are a big-ticket outlay for households and, not surprisingly perhaps, there is a strong relationship with home improvement. Broadly speaking, what happens to car sales seems to be mirrored in home improvement market about nine months later.

To spare the wait on revealing where’s hot for home improvement, the short answer is Cambridge. It has rushed up the league table of local authorities and now sits tight behind Kensington & Chelsea and Westminster, where there are more millionaires and newly created iceberg houses than you can shake a stick at.

  • Chart 2
    Chart 2
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In 2011, Cambridge ranked outside the top 100 local authorities for home improvement out of a total of nearly 400. Its rise has been meteoric. What’s more, it is an intriguing insight into the interaction of the housing market and home improvements. The normal assumption is that when sales rise, home improvement rises. That certainly has been the tendency, at least short term, at a national level. But the Cambridge experience adds nuance.

If we look at which homeowners are more likely to improve than move, a big answer can be found in house prices. Chart 3 shows house prices by region and the number of planning applications submitted in those regions for every 100 homes sold in 2016. This is a common pattern over the years. Naturally not all the applications will be followed up, but the fit is very strong as we see. The higher the house prices the more people seem to put in applications to improve their home rather than move.

There is an obvious logic here. Yes, house prices is a proxy for income and wealth, which drive home improvement. But there is something else important to note. The cost of adding an extra spare room to an existing home may vary location to location, but when it comes to the value such an improvement could be expected to bring, the difference is most marked between high and low priced housing markets. Add to the equation the progressive nature of transaction costs, such as stamp duty, and the choice between moving or improving can swiftly shift towards improving in high-house-price areas. That is if you can.

What the report finds with Cambridge is how the generally accepted relationship between more housing sales and a rise home improvement can break down and indeed go into reverse. And this seems to be happening in a number of housing markets.

Housing in Cambridge has been hot for some time. Its local economy is very buoyant country and the available housing stock is tight for the demand. The city has seen some of the sharpest rises in prices in recent years and there were strong increases in sales between 2009 and 2014. However, in 2015 and 2016 sales fell, presumably as prices became too high for many would-be buyers. But as sales fell there was a rapid rise in home improvement applications. 

  • Chart 3
    Chart 3
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Whether this is caused by existing owners being unable to afford to move locally when they wanted to climb up the housing ladder, or whether it is a late surge in spending by those who bought in the buying boom is unclear without more detailed research.

But Cambridge does, on the numbers at least, fit the property pages cliché of a place where it seems to pay to improve rather than move.

That should keep the architects of that fine city busy for a wee while longer. But lest we get too complacent about the health of the home improvers market, despite a storming start to the year, the forecasts for car sales are not promising. The trade body SMMT forecast in January a fall of 5% in new car registrations for 2017 and a further fall of 2.9% in 2018.

It is only a forecast and even if it does prove accurate it doesn’t mean home improvement spend will fall. But worth noting. As the report says, it is a cause for some caution.

Brian Green is the researcher and author of the Barbour ABI report


 

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